In re Jai Lokenath Flour Mills Private Limited (GST AAR West Bengal)
What is the value of supply of services provided by the applicant for conversion of wheat provided by the State Government into atta/ fortified atta, for distribution by the State Government through Public Distribution System and what is the rate of tax applicable on the value of supply?
In the instant case, value of supply shall be the consideration in money as well as non-cash consideration, as discussed. This composite supply of services by way of milling of wheat into flour (atta) to Food & Supplies Department, Govt. of West Bengal for distribution of such flour under Public Distribution System is eligible for exemption under serial no. 3A of the Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, as amended, since the value of goods involved in such composite supply does not exceed 25% of the value of supply.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, WEST BENGAL
1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression „GST Act‟ would mean the CGST Act and the WBGST Act both.
1.2 The applicant is a flour miller. The applicant submits that he has entered into an agreement with the State of West Bengal represented by the District Controller of Food & Supplies for conversion of wheat provided by the State Government and owned by the State Government, at all times, into atta/ fortified atta, for distribution by the State Government through Public Distribution System.
1.3 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01:
(i) What is the value of supply of services provided by the applicant Company to the State Government?
(ii) What is the rate of tax applicable on the value of supply? What components are to be included in calculation of the % of value of goods in the total value of composite supply for the purpose of Notification No. 2/2018- Central Tax (Rate)?
1.4 The aforesaid question on which the advance ruling is sought for is found to be covered under clause (b) and (c) of sub-section (2) of section 97 of the GST Act.
1.5 The applicant states that the question raised in the application has neither been decided by nor is pending before any authority under any provision of the GST Act.
1.6 The applicant, vide written submissions furnished on 21.10.2022 & 13.01.2023 respectively, states that the Directorate General of GST Intelligence („DGGI‟) initiated an inquiry into the business of the applicant in the month of December, 2020. Summons was issued and the applicant duly honoured the summons. But no show cause notice or demand order was issued by the DGGI till date. Moreover, no specific question with respect to any matter was raised by the DGGI. On being aggrieved by the action initiated by the DGGI, the applicant had filed a writ petition before the Hon‟ble Calcutta High Court vide W.P.A. 11806 of 2020. But the said writ petition was not contested by the applicant and the same has been dismissed by the Hon‟ble Court vide order dated 21.09.2021. The case status of the writ petition as appearing in the Calcutta High Court portal, is now showing as “disposed”. Therefore, it can be construed without any doubt that no proceeding is pending in this matter and the instant application is liable to be admitted in terms of the provision of Section 98(2) of the CGST Act, 2017. In this regard, the applicant has relied upon the decision of Hon‟ble Telangana High Court in the matter of M/s Srico Projects Pvt. Ltd. vs. Telangana State Authority for Advance Ruling reported in 2022 (9) TMI 418 wherein the Hon‟ble Court had quashed and set aside the order passed by the respondent authority and held that the respondent was not justified in rejecting the advance ruling application of the petitioner. It was observed that in the absence of any specific definition of the word „proceeding‟, the said word has to be understood in the context in which it is being applied, namely, any proceedings pending or decided in the case of an applicant under the provisions of the CGST Act, it would only mean proceedings where the question raised in the application for advance ruling has already been decided or is pending decision. Therefore, inquiry or investigation which is not in the nature of any proceeding would not come within the ambit of the word “proceedings”. It cannot be a bar under the first proviso to sub-section (2) of Section 98 of the CGST Act, 2017. The applicant further relied upon the decision of Hon‟ble Allahabad High Court in the matter of G.K. Trading & Co. Vs. Union of India reported in [2021] 126 taxmann.com 211 (Allahabad), wherein the Hon‟ble Court had specifically held that the subject matter in any proceeding has to be the same cause of action and the same dispute. If the cause of action in the subject matter is discrete, then each subject matter will be considered as separate and distinct. Furthermore, it has been held that inquiry is only a means to collect evidence and cannot be intermixed with the term “any proceeding”.The applicant has also placed his reliance on the decision of Hon‟ble Madras High Court in the matter of Kuppan Gounder P.G. Natarajan Versus Directorate General Of GST Intelligence, New Delhi reported in 2022 (58) G.S.T.L. 292 (Mad.) wherein the Hon‟ble Court had held that the word “proceeding” cannot be mixed with the word “inquiry”. An officer conducting inquiry u/s 70 of the CGST Act, 2017, has power to summon any person whose attendance he considers necessary to give evidence or to produce a document or any other thing in any inquiry. Such an action cannot be regarded as any proceeding under the GST Act, 2017.
1.7 The officer concerned from the revenue has referred first proviso to sub-section (2) of section 98 of the GST Act and submits that the question raised by the applicant has already been decided through a ruling passed by the West Bengal Authority for Advance Ruling vide order No. 16/WBAAR/2021-22 dated 31.12.2021 and subsequently modified vide appeal order bearing number 02/WBAAAR/APPEAL/ 2022 dated 31.05.2022.
1.8 In terms of first proviso to sub-section (2) of section 98 of the GST Act, an application for Advance Ruling made under sub-section (1) of section 97 shall not be admitted by the Authority where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of the GST Act. We have duly considered the submission made by the applicant. We find that the fact of the case of M/s Srico Projects Pvt. Ltd. vs. Telangana State Authority for Advance Ruling, on which the applicant has placed his reliance, is different from the case of the applicant. In the above-referred case, the application for advance ruling was filed on 11.05.2019 and notice was issued by the DGGI on 15.12.2021 i.e., much after the filing of application for advance ruling. The Hon‟ble Court thus held that „the same cannot be a bar under the first proviso to sub-section (2) of section 98 of the CGST Act‟. In the instant case, the DGGI had initiated inquiry in the month of December, 2020 while the applicant has filed the application in the month of September, 2022. However, the applicant has submitted that no show cause notice or demand order was issued by DGGI and no specific question with respect to any matter were issued by DGGI. The Hon‟ble Telangana High Court, in para 12 of the aforesaid order, has observed that „inquiry or investigation would not come with the ambit of the word „proceedings‟. On due consideration of the fact that no specific question or show cause notice has been issued by the DGGI, we are of the opinion that the instant application is not hit by the first proviso to section 98(2).
1.9 The application is, therefore, admitted.
2. Submission of the Applicant
The submission of the applicant is that:
2.1 It has entered into a contract with the Governor of the State of West Bengal represented by the District Controller of Food & Supplies (hereinafter referred to as the State Government) for conversion of wheat provided by the State Government and owned by the State Government, at all times, into atta/ fortified atta, for distribution by the State Government through Public Distribution System (for brevity, PDS), as entrusted under the Eleventh Schedule of the Constitution of India.
2.2 It has been selected for empanelment for crushing of wheat meal atta and fortify it by premixing of micro nutrients containing (i) Vitamin A-500 µg RE- 750 µg RE, (ii) Vitamin B120.75 µg- 1.25 µg, (iii) Iron: Ferrous(II) Citrate:28mg-42.5mg or Sodium Iron (III) EDTA: 14 mg-21.5 mg, (iv) Folic Acid- 75µg- 125µg per kg in 1 Kg poly pouch/packet (1 kg wheat ≅ 950gm fortified atta)(having thickness of poly pouch not less than 50 microns).
2.3 Under the aforesaid contract, it shall obtain stock of wheat from the State Government. The ownership of wheat remains with the State Government and the applicant is required to convert the wheat into atta by way of crushing and mixing other ingredients as stated earlier.
2.4 The contract specifies that the outturn ratio of atta will be minimum of 95% per quintal of wheat allowing refraction of 1% for cleaning and 4% for debranning to the maximum. The applicant, as per the contract, will retain 1 kg refraction and 4 kg bran against conversion of 100 kg wheat. The applicant will further retain 2 gunny bags in which 100 kgs of wheat is supplied to him.
2.5 The contract stipulates that it shall pack the crushed stock of whole wheat atta after fortification into the poly pouches of 1 kilogram each in properly labelled poly-packs having thickness of 50 microns and or above and it will deliver the stock to the M.R. Distributors as nominated by the State Government for distribution to the consumers, immediately after the process of crushing.
2.6 The applicant does not gain ownership of either wheat or atta in the entire process of crushing it. This is substantiated by Clause 10(4) of the contract which states that the applicant shall under no circumstances sell the stock of atta in the open market. The atta is distributed only through PDS.
2.7 During the process of conversion of wheat into atta, two types of wastes are generated, namely bran and refraction. The bran and refraction so generated will subsequently be retained by it and sold in the open market at the prevailing market rates which is generally around Rs 20/- per kg for bran and Re 1/- per kg for refraction. This fact was further confirmed by the State Government of West Bengal, Department of Food and Supplies vide memo no. 569(3) – FS/Sectt/Food/4P-02/2016/2021 dated 18.02.2022.
2.8 The applicant will charge crushing charges from the State Government valued at Rs 179.48 per quintal. This rate was last notified by the Government of West Bengal, Food and Supplies Department vide memo no. 2583(3) – FS/Sectt/Food/4P-02/2016 dated 07.09.2018. The following table reflects the bifurcation of this amount:
